The first quarter of this century has come to an end, and unfortunately we must conclude that humanity has not become any wiser over the past hundred years. The mid-1920s have become a symbol of light-heartedness, but in reality it was a dance on the edge of a volcano. People tried to forget a terrible war and overlooked the fact that tensions were already building for a new global conflict. Today, the situation is completely different, but the mechanisms that lead to the most primitive of all conflict resolutions, namely war, remain intact.
Once again, Europe is paying homage to the military in a naïve and dangerous way. A NATO Secretary General says that today, just like our grandfathers and fathers, we must be prepared for armed conflict. This is not only cynical and dangerous, it is also appallingly stupid, because he clearly has not understood that the existence of nuclear weapons has fundamentally changed the logic of conflict and diplomacy. Nor has he ever heard that the political response to this must be very different from that of a hundred years ago.
In terms of economic policy, we are experiencing a mental regression in Europe to the 1920s that could not be worse. As if nothing had happened in the field of economic knowledge over the past hundred years, most economists and politicians talk about the current crisis in a way that hardly differs from the statements made a century ago. That is bad. An entire continent is incapable of learning from the crises of the past, instead blindly following the narrow-minded entrepreneurial ideologies that led to ruin back then.
In Europe, the intellectual failure of the ruling circles during the Great Depression of the 1930s has never been addressed. The magnificent contributions of John Maynard Keynes, Michal Kalecki and Wilhelm Lautenbach, to name but the most important, were simply dismissed as crisis theory, and the continent reverted to the simplistic ideas of those who were intellectually responsible for the global economic crisis.
Germany in particular, with its ‘Ordnungspolitik’, has suffered an intellectual blackout that is unparalleled. This abstinence from macroeconomics is now taking its toll in the most brutal way, because the mercantilism with which Germany has managed to get by for decades has reached its political limits. We have allowed ourselves to be thrown back to the level of the Swabian housewife, where there are only wrong turns.
Always the same (wrong) pattern
The same thread runs through all the various crises of recent years and decades: political leaders – regardless of their political persuasion – always jump immediately at seemingly simple, obvious ‘solutions’ without really considering the strategic alternatives that would be available if they took a calm look at different policy approaches. With this approach, the first thing that comes along is always the ‘right’ thing and is pushed through by force because no one in the entire political establishment is able to admit that he or she might be wrong.
Europe has allowed itself to be drawn into a military conflict between Russia and Ukraine because it convinced itself that it could ruin Russia economically and also simply ‘defeat’ it with the conventional means of Ukraine and its allies. That was a mistake that can only be described as historic. Regardless of whether one morally condemns Russia’s policy in the conflict that has been developing since the 2010s with the involvement of the West, it should always have been clear that one cannot simply defeat or ruin a nuclear power without entering the realm where the nuclear power plays the nuclear card to avert defeat.
Although the military and the arms lobby are vehemently opposed to this idea, it is nevertheless absolutely compelling: attempting to defeat a nuclear power is suicide. One may lament and complain and point the moral finger, but it will not help. Germany in particular should not forget that the distribution of this terrible power in the world is a direct consequence of the Second World War, in which a small country – for the last time – attacked and severely wounded Russia.
Viewed soberly, that alone should have led to a commitment to diplomacy with everything one has, from the very first day of the conflict in and around Ukraine. For small and densely populated Europe, the danger of nuclear war is so great that absolutely nothing can outweigh the risks of such a conflict. Forty or fifty years ago, every responsible politician understood this logic of the nuclear powers and drew the right conclusions. Today, irresponsible political actors talk about confronting a nuclear power as if it were a fight between teenagers.
Fairy tales instead of political strategy in Europe
Conventional armament in Europe is pointless because nothing except interest-driven slogans suggests that Russia could have the military capabilities to seriously threaten Europe with conventional weapons in the coming decades. At the same time, Russia would have to refrain from using nuclear weapons even in the event of imminent defeat in order to justify conventional armament in Europe. Because this idea is absurd, conventional rearmament that increases the conventional superiority of Europe and NATO tenfold to twentyfold makes no sense whatsoever.
Superior conventional military strength requires superior economic strength. Russia will not achieve the latter even in a hundred years. Although the country transformed itself into a kind of market economy in the 1990s, the burdens of its founding years (in which the West played a decisive role with misguided economic policy recommendations, as shown here) weigh so heavily that real catching up is unthinkable.
The American intelligence services have just confirmed this. Former Polish Prime Minister Leszek Miller (quoted here by Overton) took this as an opportunity to read Europe the riot act. The narrative of a Russian attack on Europe, he says, is politically convenient because it ends the debate, disciplines voters and justifies any decision. To quote him verbatim: “But as a strategic analysis, it is simply ridiculous. Putin can be called many things: a criminal, a dictator, a rogue, but certainly not a suicide bomber. A state that is laboriously waging war against Ukraine and suffering enormous losses is not preparing for a head-on confrontation with NATO – an alliance that is many times stronger militarily and economically…. Against this backdrop, the EU leadership appears increasingly grotesque. Instead of realism – moral panic. Instead of analysis of capabilities – escalation of rhetoric. Instead of politics – statements written as if Europe were about to fall victim to a blitzkrieg tomorrow. The European Union is behaving as if intimidating its own population were a substitute for a strategy. The result? Ridicule. Because the louder the thesis of an inevitable attack on Poland and the West is repeated, the clearer its intellectual emptiness becomes.”
In view of the nuclear logic, we should therefore be glad that Russia, with its modest conventional means, has clearly won the conflict in Ukraine. Now it is simply a matter of facing the facts in order to end the dying in eastern Ukraine as quickly as possible.
Economic policy is being replaced by slogans
There can be no more talk of economic policy in Germany and throughout Europe. As in every crisis of the past 50 years, there is a wild tangle of conservative slogans that have nothing to do with German and European reality. It is never possible to have a serious discussion about the causes of the crisis. Any attempt at sober analysis is always shouted down by a phalanx of liberal and libertarian economists in the most important institutions and the business lobby.
Even the simplest relationships are unknown. Clemens Fuest from the ifo Institute, who is very present in the media, complains that investment in Germany has been declining since 2019 (in the SZ), but no one asks him why the institutes completely missed this. The institutes and the Council of Economic Experts are well paid by the state to take the pulse of the economy month after month. If they now say that they unfortunately overlooked the fact that the patient has been in a coma for more than five years, they should be dismissed.
The incorrect calculations of the Federal Statistical Office have also been ignored or not even recognised by Germany’s ‘top economists’. Even after the announcement of the massive corrections, not a single critical word was heard from the so-called scientific institutes. Sweeping everything unpleasant under the carpet and only speaking up when it is too late is simply a failure on the part of a field that would so much like to be a science.
When the French President rightly points out that the US has a clear economic advantage because its monetary policy is less one-sided than in Europe, the German response is limited to icy silence from politicians and disparaging remarks from government supporters in the media. The ECB itself naturally defends its current role (as here, for example), without pointing out that its ‘independence’ and, at the same time, one-sidedness is merely ‘thanks’ to the brutal power politics of a German government (under Helmut Kohl) that was extremely inexperienced in economic policy matters. This had absolutely nothing to do with better insight or empirical evidence.
But the height of incompetence was reached just a few days ago. It was ‘rock-solid Germany’ that urged the EU to commit the biggest bank robbery in history in Belgium. Had other Europeans, and Belgium in particular, not opposed this, Europe would have been discredited as a financial centre for many decades to come. This shows what to make of German solidity. It also shows how absurd it is to even mention the beautiful German word ‘Ordnungspolitik’. With this operation, the German government, as well as its media and academic supporters, have dramatically and permanently demonstrated to the whole world their inability to analyse problems objectively and draw calm conclusions.
Climate policy also lacks a logical basis
Climate policy in Germany and Europe is also pursued according to the motto that strategic thinking can only do harm. The clearest example of this is the restrictions imposed on the automotive industry. Now, there are plans to not completely ban cars with conventional engines (‘combustion engines’) in the EU from 2035 after all. The German government has pushed this through because it fears the loss of competitive advantages for its own industry. The fight against climate change is now supposed to be ‘technology-neutral’. In principle, this could be a good idea, but the decisive lever that would turn the withdrawal of a ban into a policy that is both technology-neutral and efficient is missing.
If the process of moving away from the combustion of fossil fuels is to make use of as many technologies as possible, there must be points of reference that tell engineers under what conditions they will be working today and in ten or twenty years’ time. The decisive point of reference is the price of fossil fuels. If it were clear that the global supply of fossil fuels would decline in the long term and their price would rise, technological openness would be a superior concept in many respects. There would then be no need for political bans or other bureaucratic monsters to steer manufacturing companies in the desired direction.
However, there is no clarity regarding oil and gas prices. The UN Climate Change Conference (in Brazil) has once again failed to enforce a limit on the supply of fossil fuels. As a result, mineral oil is once again dirt cheap and will probably remain very cheap in the coming years without any major shocks. In real terms (i.e. in relation to consumers’ real incomes), the price is ridiculously low. Whether Europe bans combustion engines or not is absolutely irrelevant from a global perspective. Cheap oil will be burned all over the world wherever governments cannot afford to initiate expensive energy transitions with uncertain outcomes.
What will happen?
I have said it many times before and I stand by it: only a truly major crisis can bring about a change in thinking in Europe. Only those who are forcibly thrown out of their intellectual rut can change their pace. This crisis is not far off. The obvious deflationary trends in wage development in the major countries, which the ECB has not even taken note of, as well as the fiscal policy restrictions imposed on most European countries, including France, have the potential to throw Europe completely off course.
If the euro appreciates further and this is taken as an opportunity to imitate Trump’s tariffs despite Europe’s current account surpluses, the result will be a global trade war. Europe will lose the most because it has no concept for stimulating domestic demand. The EU Commission is incompetent to an extent that defies imagination. And the central bank, which could at least provide relief via interest rate cuts in the event of a strong appreciation (in terms of both appreciation pressure and domestic demand), is acting as if none of this concerns it. There is no fiscal policy. The EMU was a good idea, but it is a technical misconstruction. Staffed by people who work according to German ideas of economic and financial policy, it is causing damage.
Europe has nothing to offer intellectually except a delusion of competitiveness. It has committed itself unconditionally to mercantilism. For a continent, this is fatal. Small countries may be able to keep their heads above water with mercantilism and niche products. A continent must be able to grow and prosper on its own. But to do so, it needs an economic theory that goes far beyond what is currently common practice in Brussels, Paris, Berlin and Frankfurt. Europe’s entire political leadership has lost its way in the great labyrinth of small-mindedness and can no longer find the way out.